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We consider a model of external financing under ex ante asymmetric information and profit manipulation (non verifiability). Contrary to conventional wisdom, the optimal contract is not standard debt, and it is not monotonic. Instead, it resembles a contingent convertible (CoCo) bond. In particular: (i) if the profit manipulation and/or adverse selection are not severe, there exists a unique separating equilibrium in CoCos; (ii) in the intermediate region, if the distribution of earnings isdoi:10.2139/ssrn.2458980 fatcat:zjb3fa7rqzdkbgurcn7dgd2n7u